How to Audit a Construction Company

How to Audit a Construction Company: A Comprehensive Guide

Auditing a construction company can be a crucial step for various reasons—whether you’re evaluating a business for investment, pre-qualification, acquisition, or simply checking the health of your own company. Unlike financial, tax, or regulatory audits, this audit focuses on the operational and structural integrity of the business, ensuring long-term success and profitability.

In this blog, we’ll explore the key areas you need to assess when auditing a construction company, using a proven framework inspired by Gino Wickman’s Traction and the Entrepreneurial Operating System (EOS). This will provide you with a clear, actionable framework to evaluate any construction company effectively.

Step 1: Assess the Company’s Vision

The first and most critical part of any audit is understanding the company’s vision. This includes their mission, purpose, core values, and long-term goals. A company’s vision shapes its direction and provides the criteria against which you’ll be auditing.

When you’re evaluating the vision, ask yourself:

• What are their 10-year, 3-year, and 1-year goals?
• Do these goals align with the mission and core values of the business?
• Does the team understand and follow this vision?

Without a strong, clear vision, any other assessment is almost irrelevant. You can’t judge growth, profitability, or even management styles effectively without knowing what the company is aiming for.

Step 2: The Right People in the Right Seats

Once you’ve understood the company’s vision, the next step is to evaluate if they have the right people in key seats. This principle, taken from Jim Collins’ book Beyond Entrepreneurship 2.0, emphasizes the importance of ensuring that the right talent is in place to drive the company towards its goals.

Key questions to ask:

• Does the company have the right leadership, including a CEO, COO, CFO, and other executives, who are aligned with the company’s goals?
• Are these key positions filled with individuals who have a strong impact on the company’s success?
• Is the company operating at more than 90% efficiency in placing the right people in these critical roles?

Having the right people in place is essential to executing the company’s vision. A team that’s not aligned with the company’s goals or core values will struggle to move the company forward, regardless of how great the vision is.

Step 3: Key Metrics and Leading Indicators

Now that you’ve identified the company’s vision and evaluated the team, the next step is to analyze the data—the company’s key metrics and leading indicators. Think of this as ensuring the bus (the company) has a clear windshield. The leadership team needs real-time visibility into the business’s health and performance.

When auditing, look for answers to these questions:

• Are there clear key performance indicators (KPIs) being tracked, such as gross profit, net profit, or win rates?
• Are leading indicators like safety, quality metrics, and employee engagement being monitored regularly?
• Does the company use these metrics to guide decisions and adjust strategies?

Without these indicators, the company is essentially driving blind, which can lead to inefficiencies, missed opportunities, or even failure.

Step 4: Can the Company Identify and Solve Its Issues?

A healthy company is not one without problems—it’s one that can see its issues, discuss them openly, and solve them effectively. When auditing, focus on whether the company is aware of its own shortcomings and whether it has a system in place to fix them.

Important questions include:

• Are there regular discussions and reviews of the company’s challenges?
• Is there a structured approach to identifying, discussing, and solving these problems?
• How quickly and efficiently are issues being resolved?

An audit that focuses on whether the company has problems is misguided; instead, assess how well they manage those problems. A great company doesn’t lack issues—it resolves them at a faster rate than others.

Step 5: Evaluate the Company’s Processes

A company’s processes are what keep it running smoothly. In an audit, it’s essential to look beyond surface-level observations and dig into the company’s standard processes. Every great business should have documented processes that guide its day-to-day operations.

Here’s what you should ask:

• Are there standardized processes for key areas, like administration and construction project management?
• Are these processes clear, documented, and followed by all relevant team members?
• Can the company train and hold employees accountable based on these processes?

When a company lacks structured processes, chaos can ensue. Ensuring these processes are in place and functioning well is crucial to long-term success.

Step 6: Audit Their Goals (Rocks)

Lastly, assess whether the company has long-term, mid-term, and short-term goals, often referred to as “rocks” in the EOS system. These rocks represent the highest-priority objectives for the company.

Ask the following questions:

• Does the company set quarterly, yearly, and multi-year goals?
• Are these goals being tracked and achieved consistently?
• Are the right priorities in place to move the business forward?

In a well-run company, these goals act as a guiding framework, ensuring that the most critical tasks are completed first. By focusing on “rocks,” the company can grow strategically without being overwhelmed by day-to-day tasks.

Conclusion:

If you’re looking to audit a construction company, this framework offers a practical and comprehensive way to evaluate its overall health and potential. The six key areas—vision, people, data, issue identification, processes, and goals—are the building blocks of a successful audit. Whether you’re a potential investor, a buyer, or a business owner looking to evaluate your own company, this process will give you the clarity you need.

To dive deeper into the concepts discussed here, check out Traction by Gino Wickman and explore the Entrepreneurial Operating System (EOS). These tools will provide additional insights and strategies to help you execute this framework more effectively.

I hope you found this blog insightful. If you have any questions or want to learn more, feel free to reach out.